Export obligation breach can defeat customs exemption even if imported materials were used in manufacture.

Duty exemption under Notification No. 13/81-Cus. for 100% EOUs depended on compliance with the prescribed export obligation, value addition and other bond conditions. Condition No. 6 allowed duty demand not only where imported materials were shown to be unused in export production, but also where the export obligation itself was not fulfilled within the stipulated period. The exemption could not be retained merely because the materials were used in manufacture if the notification conditions were breached. The matter was remanded for fresh adjudication.

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Issues: Whether duty exemption under Notification No. 13/81-Cus. could be denied for failure to fulfil the export obligation and whether Condition No. 6 permits demand of duty only when it is proved that the imported materials were not used in the manufacture of export goods.

Analysis: The exemption notification granted benefit to specified goods imported for manufacture of articles for export by 100% EOUs subject to fulfilment of the stipulated conditions, including the prescribed export obligation and value addition. Condition No. 6 required execution of a bond to fulfil the export obligations and the conditions under the notification and the Export & Import Policy, and also to pay duty on goods not proved to have been used in the manufacture of export articles. Non-fulfilment of the export obligation during the stipulated period showed breach of the notification conditions. The duty liability was not confined only to cases where it was proved that the materials were not used for the intended purpose.

Conclusion: The exemption could not be retained merely because the materials were used in production when the export obligation itself was not fulfilled; duty was demandable on breach of the notification conditions. The matter required fresh adjudication on remand.

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